Hello and welcome to our second post of the 401(k) series, 401(k) contribution. In post one, we deciphered one of the most popular retirement accounts for you!

In our second post in our 401(k) series, we will dive into the specifics of 401(k)contributions. We discuss how company matches provide you with free money towards retiring and contributing saves you tax money.

We want this post to serve as an inspiration to contribute towards your aspirations of a financial kingdom!

This post is part two of three in the 401(k) Series:

  1. Deciphering the Traditional 401(k)
  2. Do you like free 401(k) contribution money?
  3. Choosing funds for your 401(k)
Assumptions:
  • 401(k) balance is starting at 0
  • Investments will have 30 years of compounding

Let’s begin with a few scenarios that show the results of your investments over time. These will demonstrate balances after 30 years with different return rates and company matches.

Scenario 1 – 0% 401(k) contribution

5% rate of return:

$0 saved for retirement

7% rate of return:

$0 saved for retirement

Scenario 2 – 8% 401(k) contribution with 0% match

5% rate of return:

401k Contribution - Line chart starting at 0 and ending at $396,296 based on 401k contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7% rate of return:

401k Contribution - Line chart starting at 0 and ending at $558,961 based on 401k contributions

 

401k Contribution - Table summary starting at 0 and ending at $558,961 based on 401k contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scenario 3 – 8% 401(k) contribution with 4% match

5% rate of return:

401k Contribution - Table summary starting at 0 and ending at $594,4451 based on 401k contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7% rate of return:

401k Contribution - Line chart starting at 0 and ending at $838,442 based on 401k contributions

401k Contribution - Table summary starting at 0 and ending at $838,442 based on 401k contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

How do contributions change my tax bill or paycheck?

Tax Savings:

For a single individual, making 50K in 2017 and contributing 8% ($4,000), you will save $1,000 from Uncle Sam’s invoice. By utilizing your 401(k), you take advantage of free money and save taxes, DOUBLE WHAMMY! Savings + more investments = more $$$$ for your lower tax bracket future self.

A table showing that for a $50,000 annual income and 8% contribution, you save $1,000 in taxes!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paycheck changes?:

Let’s do some quick math to see your typical paycheck:

$50,000 / 26 weeks = $1,923.07

$1,923.07 * .08 contribution = $153.85 per paycheck

Actual paycheck changes according to bankrate.com?

$103!!

How? By making the contribution your tax bill per paycheck is less by 50$, in other words, you save $50 per paycheck by investing $150 towards your kingdom!!

401k Contribution -A table showing a pay check reduction of $103 when changing from 0% to 8% 401k contributions as a single filer with $50,000 per year salary.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

401(k) Contributions Table

Annual SalaryTotal ContributionTotal Tax SavingsEmployer MatchSalary Increase RateExpected Return401(k) Balance in 30 years
$50,000$0.00$0.00$0.003%0%$0.00
$50,000$4,000$1,000$0.003%5%$396,296.79
$50,000$4,000$1,000$2,0003%5%$594,445.19
$50,000$4,000$1,000$0.003%7%$558,962.69
$50,000$4,000$1,000$2,0003%7%$838,442.54

 

Concluding comments:

As we hire new workers to put up our walls and maintain them throughout our lifetime, we realized that retirement (or Financial Independence) cost money. Duke’s harness the power of our toolbox to fund our kingdom. The first two posts have presented the new tool. In our last post of the series, we will discuss how to pick investments in your account to sharpen it even more!

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